What We Can Learn from Margaret Thatcher

Margaret Thatcher has her place in world
as well as British history. Her very name is used to denote a way
of thinking: Thatcherism. She herself was not an original thinker,
and on her resignation the editor of the Daily Telegraph
described Thatcherism as a powerful collection of beliefs about the
capacities of human beings in a political society. The ideas were
not new but were put into operation by a very remarkable woman. It
was the happy coincidence of the right person, in the right place,
at the right time.

When
she became leader of the Conservative Party in 1975, Britain was on
the brink of disaster, threatened by total collapse. The weak
Labour government with a small majority presided over a bankrupt
economy in hock to the IMF and threatened from within by a
challenge to law and order itself. When she was forced from power
in 1990, she left a sound economy and a confident and well-ordered
society. The lessons are writ large.

The
achievement was remarkable, starting with the fact of being the
only woman Prime Minister in British history -- something America has
yet to emulate. She enjoyed 11 and a half years in office, longer
than any other 20th century politician (in fact, the longest since
Lord Liverpool in the 19th century). She won three successive
general elections, two of them being landslide majorities, and lost
none. The secret of her success lies in a combination of qualities,
which both saw her into leadership and were the essence of her
period in power:

Courage to see an opportunity and
take it.

Decisiveness in times of
crisis.

Clear beliefs held with an
evangelical zeal. During the 1979 election, she ridiculed the
Socialist Prime Minister Callaghan saying, "The Old Testament
prophets did not say `Brothers, I want a consensus.' They said,
`This is my faith; this is what I passionately believe; if you
believe it too, then come with me.'" Her crusading qualities were
embedded in her Methodist background, which gave a moral purpose to
all she did.

Physical strength. She needed
little sleep and would certainly have been killed by the IRA bomb
in Brighton if she had not been working on her conference speech at
2:00 a.m.

Intellectual capacity. She entered
Oxford at 17 reading chemistry.

She
was a slight, pretty, feminine woman in a man's world. She turned
what could have been a disadvantage into a useful weapon, and she
had luck.

Domestic Policy

Monetarism underpinned all Margaret
Thatcher's policies. The beliefs were clear and are still what a
free country needs to prosper. The aims were clear: to reduce the
power of government, to reduce taxation and thereby promote private
enterprise and individual rights, to give incentives to businessmen
and encourage competition. Margaret Thatcher believed that these
aims would produce economic and fiscal benefits for the people and
enable her to use the political process to further the free society
in all its aspects.

The
economic lessons of these beliefs are going to be dealt with by
Antonio Martino. In this he is fortunate, for monetarism and the
free market are what most excited Margaret Thatcher. Suffice for me
to say that what Thatcher pledged in her manifestos was delivered.
She used simple imagery that everyone could understand. She was the
grocer's daughter, the housekeeper of the nation who would balance
the budget and the nation would only spend what it could
afford.

It
was only after 1987 when Chancellor Lawson shadowed the deutsche
mark and Britain entered the ERM that the Conservatives learnt you
cannot buck the market. The price was failure in 1997. But it is
important to remember that at no point did the public lose faith in
the free market which Margaret Thatcher did so much to encourage.
The opposition have adopted this policy, and the last election was
fought partly on the basis of who could best implement that
policy -- a key part of Thatcher's legacy.

The
monetary reforms of Margaret Thatcher were paralleled by moves to
curb the power of the trade unions in Britain. Just as the
Conservative Party already had taken up free market ideas in its
manifesto for the 1970 election, so the intention to work with the
trade unions was not entirely new. The Labour Party under Harold
Wilson had introduced legislation "in place of strife," and when it
failed, the floodgates of intransigence were opened.

Callaghan (himself a trade unionist) had
tried to build a social contract between the Labour government and
the trade unions. When consensus patently failed, in the winter of
discontent of 1979, it left the field open for Margaret Thatcher.
The time was ripe, but she made the difference. She had a will of
iron and stood firm against a barrage of strikes and intimidation,
until between 1982 and 1988 the unions were brought step by step
within the law. After the final confrontation with the steel and
coal industries, the proper balance between employer and workforce
was restored. Men no longer had to join a trade union, and this,
combined with the program of privatizing nationalized industries,
resulted in a reduction of union membership from 13 million in 1979
to 8 million in 1996.

The
defeat of the trade unions, together with privatization,
represented one of Margaret Thatcher's greatest successes. The
effect was to bring large sections of the working class within the
Conservative fold. She had extended to them what had been regarded
as middle-class ideals and had, through privatization, created
popular capitalism and the beginnings of a shareholding
democracy.

When
Margaret Thatcher took office, there were 3 million private
shareholders; when she left, there were almost 11 and a half
million. The tabloid newspapers latched onto this and joined their
broadsheet cousins in publishing alongside the racing columns share
market information and news. The popularity of privatization
increased as each industry was floated on the stock exchange. When
the gas industry was launched, the shares were oversubscribed by
500 percent.

Working people were given a further stake
in society by the sale of locally subsidized housing, in which many
of them lived. They were sold to tenants at knockdown prices, and
between 1979 and 1989 owner occupation increased from 55 to 63
percent. Despite the setback of the recession of the early 1990s,
the ambition of most of the electorate remained to own their own
home.

As
Margaret Thatcher drew the wider electorate into her beliefs, it
should be remembered that she had originally had to fight all the
way within her own party. Unlike an American President, who takes
with him his whole machine, Margaret Thatcher was an outsider who
inherited a Cabinet and party machine, both of which were
consensual in attitude. This applied even more so to the civil
service, which for 15 of the previous 19 years had been under
socialist direction.

She
used similar tactics to turn round all three to her way of
thinking. She bypassed them until she had the members she wanted.
She used subcommittees instead of full Cabinet to ensure her
policies. She used outside think tanks: the Institute of Economic
Affairs, which had given her the early tutelage in monetarism, and
the Centre for Policy Studies, founded by her guru, Sir Keith
Joseph. Like Heritage in America, they created the intellectual
ideas for she and her followers to implement. She brought in
outside advisers: academics like Alan Walters and Terry Burns and
successful businessmen like Sir John Hoskins (computer magnate),
Derek Rayner (M&S), and Sir Robin Ibbs.

The
need to cut bureaucracy and public spending was tackled from the
outset, and between 1979 and 1987 the number of civil servants was
reduced by 22.5 percent (732,000 to 567,000). The truly radical
changes were introduced between 1987 to 1990, inspired by Sir Robin
Ibbs. Only a small core of advisers was to be retained to run
government machinery, and most civil servants would work for new
executive agencies, attached to ministries. Precise targets were to
be set and held to. Although the reforms were properly effected
after Margaret Thatcher had left office, she had changed the
culture of the machinery of government.

It
was more difficult to bring about cost cutting and reform in local
government and the welfare services of health, social security, and
education. The welfare needs were seen by the electorate as free
and of right. It is difficult to take a bone away from a dog, and
the early years of her premiership were taken up by more pressing
matters.

Cost-cutting measures were undertaken in
all the services, but despite cash limits being imposed, overall
spending rose. (For example, in health, from 1980 to 1987 it
increased by 60 percent). In education, my voucher scheme was
turned down by
Cabinet, and only minor changes were introduced.

In
local government, cost cutting had perverse repercussions. The
spendthrift city authorities controlled by the extreme left were
rate-capped and the worst of them all, the Greater London Council,
abolished. Unfortunately, it allowed Councillors to blame
government for shortfall in services and increased centralized
control, which reduced freedom.

Margaret Thatcher's populist instinct had
made her more cautious in these areas, but after the election
success of 1987, when she saw her monetary policies threatened by
runaway costs, she introduced dramatic reform in all these areas.
Again they were not properly implemented until she had been forced
from office.

The
changes that had been undertaken were to prove part of her undoing.
The poll tax, which was an individual tax which replaced a property
tax, was so unpopular it had to be withdrawn. The health and social
security changes frightened the electorate and led to the debacle
of 1997. In education, the setting up of grant-maintained schools
to bring power and responsibility to individual schools as against
the local authority was overturned by the present government.

There is a lesson in all this: Always
tackle the controversial or unpopular measures at the beginning of
an administration. Margaret Thatcher thought she was doing this
after her great election success in 1987. She could not have
foreseen she would have been forced out of office in three years.
It was not that the ideas were wrong; the think tanks had provided
mechanisms to introduce market principles. In these areas, however,
only a few politicians had been willing to preach their virtues.
Their time is yet to come, the message must still be
reiterated.

Foreign Policy

Few
politicians in history have the opportunity or ability to shine in
domestic and foreign policy. Margaret did both. She was patriotic
and had no compunction in unfurling that flag. Her patriotism was
instinctive and struck a chord with the British people. They saw
her as a powerful leader who stood up for Britain.

She
didn't pretend to be a diplomatist, and actually said of herself,
"I know nothing about diplomacy, but I just know and believe I want
certain things for Britain." These were increased respect for
Britain as a leading power, limitations on European pretensions,
and a close alliance with the U.S.

This
latter was the most important and productive, and was cemented by
the mutual attraction and meeting of minds of President Reagan and
Margaret Thatcher on most issues. It enabled her to fight a war
8,000 miles away in the Falklands. She had the backing of the
British people, but she needed American help. It was given, and she
never forgot this. Neither did she forget European procrastination
and obstructiveness. Later, she was to use her prestige to nudge
President Bush into the Gulf War.

Britain remained America's strongest ally.
She stood with America against terrorism in the Libyan crisis. Most
important, she stood with President Reagan on the Strategic Defense
Initiative but ensured that what was good for America did not
undermine NATO, nor undermine the nuclear deterrent necessary for
the rest of the West. It proved to be the final piece in the jigsaw
that saw the end of the Evil Empire and the collapse of Russian
Communism. The Iron Lady had played her part, and the chemistry
that had worked with Reagan similarly worked with Gorbachev.

The
repercussions of the changes that were pursued by the action of
these three people were immense. The world was made a different
place. As Margaret Thatcher herself said after leaving office, "The
US and Britain have together been the greatest alliance in the
defence of liberty and justice that the world has ever known."

Margaret Thatcher's part in the fall of
Russian Communism bridged her American and European policies. She
wanted the Eastern European countries free and absorbed into the
European Community. This would dilute French and German dominance
of Europe and make more likely a community of independent national
states. From 1980 to 1988, she visited Eastern Europe as often as
she could -- Hungary, Czechoslovakia, Russia, and Poland. She was
popular and was seen as the champion of the values they
wanted -- national determination, liberty, and the free market. She
raised British prestige and gave the people of Eastern Europe
hope.

The European Community

Her
dealings with the European Community were a different matter. There
was no meeting of minds with her European partners. The
protectionist, bureaucratic structure was contrary to British
tradition. The Foreign Office and the majority of her Cabinets were
pro-Europe and believed in consensus. Margaret Thatcher didn't, and
in British interests managed to have the Common Agricultural Budget
reduced and in 1980 handbagged the Commission into agreeing to a
rebate for our contributions.

The
price she paid was high. The economic recession in the late 1980s
persuaded her into the single market. She saw it as beneficial for
commerce and the extension of free trade. Her continental partners
saw it not only as economic but political: the move to a single
European state.

All
three parties and the British public have moved their stance on
Europe since 1970, when we first joined the Community. The present
Conservative position of wanting to keep Sterling and against
political integration fits the mood of the majority of the British
people. The party should shout this loudly from the rooftops. It is
a potential election winner. Europe however, was Margaret
Thatcher's nemesis. Perhaps it is fitting she was in Paris when her
fate as Prime Minister was sealed.

A Remarkable Legacy

Margaret Thatcher was a conviction
politician and left a remarkable legacy. Beware Mr. Blair: There is
no third way. He has benefited from the sound economy he inherited.
He also has the precious legacy of an electorate well-versed in
monetarism during the 18 years of Conservative government. He has
pledged to continue the fiscal policies for two years. They are now
up, and the pressure is mounting within factions of his party for
him to spend.

Significantly, the crude banners of a
pressure group demonstrating outside the Labour Party conference
last week read: "Stuff the market, tax the rich." His continuation
of the privatization policy is compromised by government private
partnership. His rhetoric to keep the trade unions at arm's length
is already undermined by his actions. Privileges have already been
introduced via the back door of the socialist-led European
Community laws.

We
should all remember that the three most successful Conservative
leaders who won three successive elections were Lord Liverpool
(early 19th century), Lord Salisbury (late 19th century), and
Margaret Thatcher. They were all right-wing. They did not seek the
center. When Margaret Thatcher was given the Winston Churchill
Award by the U.S., the citation read: "Like Churchill she is known
for her courage, conviction, determination and willpower. Like
Churchill she thrives on adversity." They were both loved and hated
but left their mark.

--
Sir Rhodes Boyson was one of the architects of the Thatcherite
Revolution and served in several senior posts in the Thatcher
government. He delivered these remarks at a meeting of The Heritage
Foundation's Windsor Society in Sea Island, Georgia, on October
3-6, 1999.

ECONOMIC LESSONS
Antonio Martino

What
role did leadership play in making the last two decades of this
century so radically different from the first eight decades? I
shall argue that Margaret Thatcher's and Ronald Reagan's leadership
has translated the revolution in economic thinking into actual
policy changes.1 Also, by bringing those
ideas out of the ivory tower and into the political arena, they
have contributed in shifting the focus of political debate in a
direction more favorable to a free society. If today's political
discourse is so radically different from what it has been for the
greatest part of this century, this is certainly due to the
intellectual giants that have prepared the revolution -- Friedman,
Hayek, Buchanan, Stigler, to name just a few -- but also to a great
extent to two world leaders -- Reagan and Thatcher -- who have allowed
those ideas to be implemented and, by so doing, to be known to the
masses.

An Epochal Change

It
is gratifying to look back at the political climate which has
prevailed for most of this century and compare it to the present
one. The century that is coming to its end has been the century of
the State, a century of dictators, the century of Hitler and
Stalin, as well as the century of arbitrary government and of
unprecedented intrusion of politics into our daily lives. It has
produced the largest increase in the size of government in the
history of mankind.2 Just to mention a single,
but very significant, indicator: In 1900, the ratio of government
spending to GDP in Italy was 10 percent; in the 1950s, 30 percent;
and it is now roughly 60 percent. Similar considerations apply to
most countries.

For
the greatest part of the 20th century, the prevailing intellectual
climate has been in favor of socialism in one form or another. The
future of freedom, of a society based on voluntary cooperation,
free markets, and the rule of law, appeared uncertain, to say the
least.3
Many people had become convinced of the "inevitability of
Socialism."4 There is no need to insist
on this point. We all remember how gloomy the political scenario
was for freedom fighters until recently.

In
the course of the 1970s, things started to change.5 Gradually,
pessimism subsided and a new mood started to take hold. More and
more people were expressing dissatisfaction with the old socialist
prescriptions and indicating a preference for market mechanisms.
Socialists of the old school became fewer and fewer. As a result,
believers in a free society began to hope for the future of a
liberal order.

A
notable precursor of the change and a conspicuous exception to the
then prevailing climate of pessimism was Arthur Seldon, co-founder
of the Institute of Economic Affairs in London. In a letter to
The Times on August 6, 1980, he went as far as to predict:
"China will go capitalist. Soviet Russia will not survive the
century. Labour as we know it will never rule again. socialism is
an irrelevance." At that time, this view was regarded as
preposterous, an eccentric example of English witticism. Ten years
later, it seemed prophetic if not obvious.

What
brought about this radical change? Why has political rhetoric, and
at times even actual policy, changed so much?

The
epochal change in public policy began as an intellectual
revolution. This is not as obvious as it sounds. On the practical
importance of their ideas, economists disagree. As is well-known,
Keynes was very sanguine: "the ideas of economists and political
philosophers, both when they are right and when they are wrong, are
more powerful than is commonly understood. Indeed the world is
ruled by little else."7 Alfred Marshall, his
Economics teacher, on the other hand, was convinced that economists
should preach unpopular truths:

Students of social sciences must fear
popular approval, evil is with them when all men speak well of
them.... It is almost impossible for a student to be a true patriot
and to have the reputation of being one at the same time.8

This
was also Hayek's view, when he stressed that the economist "must
not look for public approval or sympathy for his efforts"9 Finally,
George J. Stigler was convinced that the practical relevance of the
Economics profession's intellectual output was minimal: "economists
are subject to the coercion of the ruling ideologies of their
times."10

I
tend to disagree with Stigler on this point.11 There is no doubt in my
mind that "the Great U-turn" of our times has been initiated by a
legendary revolution in economic thinking. From the perspective of
the ideological confrontation, I am convinced that -- thanks to the
work of the great liberal scholars of this century -- we live in one
of the happiest times in the contemporary history of mankind. It
seems to me that never before has the case for freedom been more
thoroughly analyzed and better understood. Also, more people are
aware of the importance of freedom on a theoretical level today
than at any other time in the past 50 or 100 years.12

The "British Disease"

In
the 1970s, Britain's economy was in a sorry state: Many people were
regularly referring to the "British disease." This was not an
exaggeration: "during the nineteenth century and the first three
fifths of the twentieth century the United Kingdom remained ahead
[in terms of output per head] of nearly all the main European
countries."13 "Since 1960, however, an
absolute gap emerged...[and] by 1973 most European Economic
Community countries were 30 to 40 per cent ahead of Britain."14

Productivity was much lower than in
continental Europe: According to studies by international
corporations, at the end of the 1970s net output per head was over
50 percent higher in German and French plants than in corresponding
plants in the United Kingdom.15 To top this all, Britain
experienced rampant inflation -- from 1972 to 1977, while the OECD
price level rose by 60 percent, the British level rose by 120
percent -- and high unemployment -- by 1977, the British unemployment
rate was 7 percent, or 2.5 percent above the OECD average.

This
appalling record seemed paradoxical to the late Mancur Olson:
"Britain has had more giants of economic thought than any other
country," and "[m]ost of the great early economists, and certainly
men like David Ricardo and John Stuart Mill, were classical
liberals." Their work had a definite impact on British public
opinion: "classical liberalism was more popular in 19th-century
Britain than...in most countries of continental Europe." And yet,
"Britain has suffered from the `British disease' of slow growth."
He concluded: "[W]e need something besides the level of economic
understanding to explain economic performance."16

It
seems to me that Olson makes a mistake in lumping together the
British economic thinkers of the 18th and 19th centuries with those
of the 20th. First of all, while it is hard to dispute British
supremacy in economic thought in the 18th and 19th centuries, I
very much doubt that the same can be said of British economists in
the 20th century. There have been notable exceptions, no doubt, but
it seems to me that, compared to the previous centuries, the 20th
century has been one of mediocrity as far as British economic
thinkers are concerned.

Nor
am I impressed by John Maynard Keynes -- whom Olson quotes as
evidence that British supremacy in economic theory continued in the
20th century -- because his influence, in my view, has been
disastrous. Britain and the world would have definitely been better
off had Keynes devoted his tremendous intellectual powers to some
other subject.

Finally, the majority of the Economics
profession in Britain after Keynes' death in 1946 has been notable
for its mediocrity and its contempt for the free market: Let's not
forget the manifesto of 364 British economists against Mrs.
Thatcher's policies. Contrary to what Olson thought, the "British
disease" was another example of the power of ideas, of wrong ideas:
The anti-capitalistic consensus among British economists has
undoubtedly contributed to Britain's decline.17 In particular, let us see
why Britain's stagflation in the 1970s and her relative economic
decline did not take place despite the influence of John Maynard
Keynes, but because of it.

Keynesianism

Following Keynes' teaching, British
economists were convinced that inflation was the unavoidable price
of economic growth and a cure for unemployment.18 They also believed that it
was possible to reduce interest rates through monetary expansion
and that the economy could be "fine tuned" in the short term, thus
avoiding the ups and downs of the economic cycle. Furthermore,
inflation was not considered a monetary phenomenon but the result
of excessive increases in wages due to what Samuel Brittan calls
"union pushfulness," so that in order to combat inflation, one had
to resort to wage and price controls, and come to terms with the
unions, while at the same time pursuing expansionary monetary and
fiscal policies to stimulate demand.

All
of this sounds absurd today, and it certainly is, but it was the
general Keynesian consensus at that time, shared by the Labour
Party and to some extent also by the Tories. Everybody seemed to
agree to the same Keynesian concoction: easy money, high taxation,
deficit spending, and wage and price controls (incomes policy, as
it was called in England).

Needless to add, all of these views have
succumbed to the empirical evidence and the theoretical analyses of
the last 30 years. The heroes of the counter-revolution are the
great liberal thinkers I mentioned before: Milton Friedman,
Friedrich Hayek, etc. We now know that there is no evidence that
economic growth inevitably involves price inflation.19 The idea
that one can reduce unemployment through inflation is thoroughly
discredited. Only an accelerating inflation could keep unemployment
below its "natural rate," but even that unappetizing possibility is
dubious.20

Finally, as for the desirability of wage
and price controls, we now know that the remedy was not only
ineffective but also positively harmful.21 A side effect of these
policies was that of making the problem of the excessive power of
labor unions much worse. Britain in the 1970s confirmed the wisdom
of Henry Simons who, in a famous 1944 article,22 had denounced the danger of
labor unions:

labor monopolies...once
established...enjoy an access to violence which is unparalleled in
other monopolies.... Unions may deal with scabs in ways which make
even Rockefeller's early methods seem polite and legitimate. They
have little to fear...from Congress or the courts.23

It
may be argued that Simons, writing in the U.S. in the 1940s, was
slightly too pessimistic. His analysis, however, describes
perfectly the U.K. of the 1970s. Keynesianism had convinced the
overwhelming majority of politicians of both parties that there was
no alternative to a policy aimed at appeasing the unions, while at
the same time following an expansionary demand policy, through easy
money and budget deficits. Wrong ideas resulted in
stagflation -- slow growth, unemployment, and inflation -- and a rapid
growth of the size of government.

Ideas and Interests: The Case of
Britain

To
put it bluntly, by the 1970s Britain was a basket case. Many
economists agree that the excessive power of labor unions was
responsible for the sorry state of Britain's economy.24 For
example, according to Samuel Brittan:

[M]any of the particular perversities of
British economic policy stem from the belief that inflation must be
fought by regulation of specific pay settlements. To create a
climate in which the unions will tolerate such intervention has
been the object of much government activity. This has involved
price controls, high marginal tax rates, and a special sensitivity
to union leaders' views on many aspects of policy. The post-1972
period of especially perverse intervention began, not with a change
of government, but with the conversion of the Heath Conservative
government to pay and price controls.25

Brittan is referring to the disastrous
economic policies uniformly pursued by Conservative and Labour
governments in Britain during the 1970s.26 In particular, the
Conservative government to which Brittan is referring started with
admirable intentions. In the Conservative manifesto for the 1970
election, one reads:

[W]e reject the detailed intervention of
socialism, which usurps the function of management, and seeks to
dictate prices and earnings in industry.... Our aim is to identify
and remove obstacles that prevent effective competition and
restrict initiative.27

These admirable intentions were not
followed by equally commendable policies. In fact,

[T]he Conservative government of 1970-74
was the most corporatist of the post-war years. Its economic
policies ended in disaster and the Conservative party lost two
elections in succession. Not surprisingly, Mr. Heath lost the
leadership of the party....28

According to Brittan, the excessive power
of organized labor also influenced the tax code, with devastating
consequences:

For
most of the postwar period the real trouble has been...not average
tax rates but the very high marginal rates of tax, both at the top
and at the bottom of the income scale. The top marginal rates are
not only higher than in other industrial countries, but reached at
a much lower level of income. These are entirely political taxes.
The revenue collected at the top is trivial in statistical terms;
and the real effect is certainly to lower revenue.... As
important...is the diversion of scarce energy and talent into
trying to convert income into capital, or into benefits in kind not
taxable at these rates.29

Thatcher

This
was the background of the advent of Mrs. Thatcher. Wrong economic
theories, entrenched interest groups, and a widespread aversion for
the free market had resulted in economic sclerosis, inflation,
unemployment, and general decline. She intended to change all of
this, and she did.

Her
first battle was in the field of macroeconomic policy, where there
was a switch from reliance on fiscal policy as a means of managing
aggregate demand to the use of monetary policy. In fiscal policy
the aim was that of reducing the deficit (PSBR: Public Sector
Borrowing Requirement). In the field of taxation, the goal was that
of restoring incentives to work, save, and invest through cuts in
all tax rates, especially at the highest levels. The underlying
philosophy was that the restoration of incentives was more
important than the search for equality.

But
where she really excelled was in macroeconomic or supply side
reforms:

Thatcher also succeeded in taming the
unions. Even her detractors concede that that was one of her great
successes, one which she shares with President Reagan:

[Reagan and Thatcher] did make
considerable progress in shrinking the role of government, and in
expanding the reach of market forces in the microeconomy. Both did
so, first, by taming the trade union power.... The President
successfully broke a strike by air traffic controllers in 1981....
The Prime Minister equally successfully broke a strike in 1984-85
by coal miners determined to impose their leader's political agenda
on an electorate that had rejected it.31

She
also succeeded in shrinking government's direct role in the economy
through privatization. It is generally recognized that
"Thatcherism's success in converting state-owned to privately-owned
enterprises...[was] a programme so radical in conception, and so
successful in operation, as to have won the highest form of
flattery from other nations -- imitation."32 Contrary to what people
both on the right and on the left maintain, Mrs. Thatcher's
successes do not include a reduction in total public spending:
"Indeed, 18 years of Tory government left the state's overall share
of the economy virtually undiminished: 44% of GDP in 1979 and 43%
in 1996."33

To
sum up, Thatcher succeeded in drastically reducing inflation in a
country that had become dependent on it; taming the power of what
were probably the most powerful labor unions in Europe; privatizing
a large portion of a bloated public sector; enacting a tax code
more favorable to entrepreneurship and investment; and establishing
the conditions for long-term economic growth.

She
put an end to the "British disease." She put Britain back to work.
Last, but definitely not least, she shifted the focus of political
debate on economic issues. Mr. Blair's economic program would have
been considered Conservative in the 1970s. If Labour has been
forced to drastically alter its position, this is largely due to
Mrs. Thatcher's legacy. One can criticize some details, but overall
hers has been a fantastic success.34

How Did She Do It?

How
did she do it? I believe there are several factors that contributed
to Thatcher's "Conservative Revolution."

Ideas. There is no doubt that
Thatcher's success is largely due to the power of ideas. She
acknowledged the important role played by the Institute of Economic
Affairs in providing the intellectual ammunition and the
inspiration for her program. On the occasion of the 30th
anniversary of the IEA, she said:

[T]he Institute began at a time when
despite free speech in a free country, there prevailed what I would
call a censorship of fashion. Anyone who dared to challenge the
conventional wisdom of the post-war years was frowned-upon,
criticized, derided and pilloried as being reactionary or
ignorant.... You set out to change public sentiment.... May I say
how thankful we are to those academics, some of whom were very
lonely, and to those journalists who joined your great endeavour. I
do not think they ever numbered 364. They were the few. But they
were right, and they saved Britain.35

Without those ideas, Thatcher's revolution
would have been impossible. However, let's not forget that most of
them were already available 10 years earlier at the time of the
Heath government. It can be argued that in 1979 the justification
for a radical change in economic policy was stronger than ever
before, but it is still true that ideas alone do not explain the
revolution. They were a necessary, but certainly not a sufficient,
cause for the change.

Circumstances. It is true that by
the end of the 1970s, the evidence of the failure of the statist
policies pursued by both Labour and Tory governments was
overwhelming. I believe that circumstances did play a role in
Thatcher's success. However, the evidence of the failure of those
anti-market policies was already in existence in 1970, even though
it was not as conspicuous as in 1979.

Furthermore, let's not forget that not
everybody drew the same conclusions from that experience. Certainly
not the Labour Party that in 1979 was as Socialist as ever. And, as
far as academic economists are concerned, the vast majority was
convinced that there was no need for a change in policy, as
revealed by the 364 of them who signed a manifesto against the new
policies of the Thatcher government. The evidence was undoubtedly
there, and it helped Thatcher's cause, but it had been there before
with no impact, and many educated people still failed to draw the
correct conclusions from it.

Interests. The trade unions had
abused their power, and this made the case for reducing their
influence stronger than ever. However, even this was not new: The
danger omnipotent labor unions pose to a free society had been
obvious for years, yet nobody had ever tried to tame them.

Leadership. I believe that, while
these factors played a role in Thatcher's success, the crucial
element was her personality, her principled and uncompromising
leadership. It can be said of her what Ted Kennedy said of
Reagan:

It
would be foolish to deny that his success was fundamentally rooted
in a command of public ideas. Ronald Reagan may have forgotten
names, but never his goals. He was a great communicator, not simply
because of his personality or his teleprompter, but mostly because
he had something to communicate.36

She
dared do what no one else had had the courage to do in Britain for
decades: challenge the prevailing consensus, the common wisdom, the
entrenched interests, and drive a reluctant party and a befuddled
country in a radically new direction.

I
can testify to her unusual personality. I have had the chance to
meet her several times even before I entered politics. Once, in
1991, there was a conference in Fiesole, near Florence, organized
by the National Review Institute. During a coffee break, we were
walking along the portico of the hotel. Tuscany's countryside
looked magnificent under the afternoon sun. Mrs. Thatcher remarked:
"Yours is a beautiful country, with a rotten government." To which
I replied: "My dear lady, the opposite would be much worse."

Her
straightforward, direct way of putting things, so unusual for a
political leader, earned her some enemies among other leaders but
made for a refreshing contrast with the hypocrisy and vacuity of
the accepted political discourse. At times, she probably overdid
it. For example, on that same occasion in Fiesole, during her
summing-up of the conference, she came out with the statement:
"Civilization is the exclusive prerogative of English-speaking
peoples." I was the only non-English, non-American in the room. I
looked at John O'Sullivan, who was sitting next to me. He smiled
and said, "You have been consigned to barbarism!"

She
can also be very kind and thoughtful. When we won the elections in
Italy in 1994, she sent me a fax of congratulations. I called her
to thank her for her kindness. She gave me her usual pep talk: "You
must do for Italy what I did for Britain." I attempted to explain
that we were at a disadvantage compared to her. I said: "You had a
Constitution that was written in the hearts and the minds of your
people. We don't. You had an independent judiciary. We don't. You
had a clean and effective civil service. We don't. You had a single
party majority. We don't. You had those think tanks, like the IEA,
that provided you with the right ideas. We don't."

"However," I added, "we have something
which you didn't have." "What's that?" she said. "Your example," I
replied.

As
to the relative importance of ideas and/or leadership, she gave her
own view on the occasion of the celebration of the 30th anniversary
of the IEA. After having listened to a series of speeches by
distinguished academics, all praising the great importance of
ideas, she thus concluded her remarks: "Speaking as the eleventh
speaker and the only woman, I hope you will recall that it may be
the cock that crows but it is the hen who lays the eggs."

What Can We Learn from Thatcher?

The
lesson to be drawn is quite simple and not particularly
encouraging: Mrs. Thatcher's success owes much to the intellectual
revolution in economic theory. She did not invent anything new;
there was nothing novel or original in her economic policies.
However, while those ideas had been available for a long time, they
had not been translated into policy changes until she came about.
It was her leadership, courage, determination, and intellectual
integrity that allowed those intellectual insights to inspire
actual economic policies and change Britain.

Which brings me to my unpleasant
conclusion: The limiting factor in politics today is not the
comprehension of the nature of social problems and of their
desirable solution -- even though we still have a long way to go to
make the case for economic freedom fully grasped by the majority of
public opinion and of politicians. The really scarce resource is
leadership. A principled and uncompromising leader capable of
building a coalition, a majority consensus around his platform is
essential if we want to move toward a freer world.

Unfortunately, however, the likes of
Thatcher and Reagan are not in large supply, and we can't wait for
another one to come about. "So long as the people of any country
place their hopes of political salvation in leadership of any
description, so long will disappointment attend them."37 We must
continue polishing our case, making it more convincing, exploring
new ways to enlarge our freedoms, and above all converting
politicians to our cause. This is what Heritage is all about.

Antonio Martino is
Professor of Economics at LUISS "G. Carli" University in Rome. He
is currently on leave as a Member of Parliament. He delivered these
remarks at a meeting of The Heritage Foundation's Windsor Society
in Sea Island, Georgia, on October 3-6, 1999.

1.I plead guilty: I am
not qualified for a neutral, dispassionate evaluation of Mrs.
Thatcher's economic legacy. I am partial to her. Also, of the many
slurs I have received during my brief tenure in
government--Euro-skeptic, anti-European--the one that bothered me
the least was that supposedly ultimate insult: Anglophile. In many
ways, I am a confirmed
Anglophile.

2.In this sense, a
prophecy has been confirmed. In the entry "Fascism" in the
Enciclopedia Italiana, signed by Benito Mussolini but
apparently written by philosopher Giovanni Gentile, one reads: "If
the 19th century has been the century of the individual (for
liberalism means individualism), it may be conjectured that this is
the century of the State...that this is the century of authority, a
Fascist century."

3.In 1947, the founders
of the Mont Pelerin Society thus expressed their concerns: "The
central values of civilization are in danger.... The position of
the individual and the voluntary group are progressively undermined
by extensions of arbitrary power. Even the most precious possession
of Western Man, freedom of thought and expression, is
threatened.... These developments have been fostered...by the
growth of theories which question the desirability of the rule of
law...by a decline of belief in private property and the
competitive market...." Their aim was to combat the prevailing
consensus with an alternative vision of man, economy, and society.
Their undertaking seemed hopeless. Joseph A. Schumpeter, for
example, was not impressed. In 1949, after having listed a series
of socialist principles which, as a result of the "disintegration
of capitalist society," were being "taken for granted by the
business class...and by the large number of economists who feel
themselves to be opposed to (one hundred percent) socialism," he
added: "I believe that there is a mountain in Switzerland on which
congresses of economists have been held which express disapproval
of all or most of these things (e.g. socialist policies). But these
anathemata have not even provoked attack." Joseph A. Schumpeter,
"The March into Socialism," 1949, reprinted in Capitalism,
Socialism and Democracy, 3rd ed., Harper Torchbooks, The
University Library, Harper & Row, New York, 1950, pp.
415-425.

4.Joseph A. Schumpeter,
for example, like many others was sure that capitalism was doomed
and that socialism would prevail: "Can capitalism survive? No. I do
not think it can.... [T]he actual and prospective performance of
the capitalist system is such...that its very success undermines
the social institutions which protect it, and 'inevitably' creates
conditions in which it will not be able to live and which strongly
point to socialism as the heir apparent." Schumpeter,
Capitalism, Socialism and Democracy, p. 61. By socialism,
Schumpeter meant a society where "the control over means of
production and overproduction itself is vested with a central
authority--or [where] the economic affairs of society belong to the
public and not to the private sphere."

5.Milton Friedman was
among the first to show some optimism. In 1973, he declared: "There
are faint stirrings and hopeful signs. Even some of the
intellectuals who were most strongly drawn to the New Deal in the
thirties are rethinking their positions, dabbling just a little
with free-market principles. They're moving slowly and taking each
step as though they were exploring a virgin continent. But it's not
dangerous. Some of us have lived here quite comfortably all along."
Playboy interview, February 1973, reprinted in There's No Such
Thing as a Free Lunch, Open Court, LaSalle, Illinois, 1975, pp.
1-38. The quoted language is on p. 38. At about the same time,
David Friedman was even more blunt than his father: "Socialism, as
a coherent ideology, is dead and is not likely to be revived....
Yet many people...call themselves socialists. 'Socialism' has
become a word with positive connotation and no content." David
Friedman, The Machinery of Freedom, Guide to a Radical
Capitalism, Harper Colophon Books, 1973, p. 129.

8."If there is any set of
opinions by the advocacy of which a newspaper can increase its
sales, then the student...is bound to dwell on the limitations and
defects and errors, if any, in that set of opinions; and never to
advocate them unconditionally even in an ad hoc discussion."
Quoted in A. C. Pigou, Economics in Practice (London, 1935),
pp. 10-11.

9."On Being an
Economist," 1944, reprinted in What Do Economists
Contribute? Daniel B. Klein, ed., New York University Press,
New York, 1999, p. 146. Similar views have been expressed by
William H. Hutt, for example; see Klein, ed., What Do Economists
Contribute? p. 9.

10.Which would suggest
that their output has little, if any, impact in shaping those
ideologies. G. J. Stigler, "The Politics of Political Economists,"
The Quarterly Journal of Economics, Vol. LXXIII (November
1959), reprinted in Essays in the History of Economics,
University of Chicago Press, 1965, pp. 51-65. "Lacking real
expertise, and lacking also evangelical ardor, the economist has
had little influence upon the evolution of economic policy." George
J. Stigler, "The Economist and the State," American Economic
Review, March 1965. "I believe that the economics profession
has been basically more conservative than the educated classes
generally" (pp. 54-55). However, he repeated that "economists exert
a minor and scarcely detectable influence on the societies in which
they live" (p. 63), and "[t]he main lesson I draw from our
experience as preachers is that we are well received in the measure
that we preach what the society wishes to hear" (p. 13). G. J.
Stigler, The Economist as Preacher, Basil Blackwell, Oxford,
1982.

11. I
concur with the view that knowledge is not merely information; "it
is also interpretation and judgment…. By providing powerful
interpretation and scrupulous judgment, economists can take a more
vital role in public discourse…. Error may be corrected when
the individual discovers a new interpretation: knowledge includes
not only information, but also insight: insight, that is to new and
superior interpretation." Daniel B. Klein, "Introduction," What Do
Economists Contrib-ute? pp. 1 ff. The quoted passages are on pp. 5
and 6.

12. I realize that this is a strong statement. There is an
inevitable distortion of our perspectives produced by chronological
selection. Few people who are great thinkers in the eyes of their
contemporaries stand the test of time and are still con-sidered
great by future generations. As a result, we are often led to
believe that there are more great scholars among our contemporaries
than there were in the past. However, even if we allow for this
distortion, it seems still true to me that a very large number of
the great liberal thinkers of all times belong to this century.
Furthermore, even though ideas always have parents, in the sense
that their origin can be traced back to past achievements, the case
for freedom as presented by today's thinkers is more consistently
argued and better supported than ever before.

14.Daniel T. Jones,
"Output, Employment, and Labour Productivity in Europe Since 1955,"
as quoted by Brittan, "How British Is the British Sickness?" p.
247.

15.Ibid.

16.Mancur Olson, "How
Ideas Affect Societies: Is Britain the Wave of the Future?" in
Ideas Interests & Consequences, Institute of Economic
Affairs, London, 1989, pp. 23 ff. He was also convinced that "there
are special circumstances in which ideas can play a large role" and
that "widely accepted ideas can sometimes overcome the strongest
organized interests" (p. 24).

17.I feel strongly about
this because from the late 1950s and on, socialist economic
thinking has been massively imported from Cambridge, UK, into Italy
with devastating consequences for our economy. Just to give you an
illustration of the extent to which bad British economics has
colonized our universities, according to one of my students'
dissertation, of the 50 textbooks on macroeconomics most used in
Italian universities, 49 are Keynesian.

18.J. Tobin and L. Ross,
"Living with Inflation," New York Review of Books, May 1971;
J. Tobin and L. Ross, "A Reply to Gordon Tullock," Journal of
Money, Credit and Banking, May 1972; James Tobin, "More on
Inflation," Journal of Money, Credit and Banking, November 1973;
James Tobin, "Inflation and Unemployment," American Economic
Review, March 1972.

19.On the contrary, there
are good reasons to believe that monetary instability hinders
long-term projects and makes economic growth more difficult, as
evidenced by the experience of a number of Latin American
countries.

20.There is no stable
trade-off between inflation and unemployment: An unexpected
acceleration of inflation may temporarily reduce unemployment below
its "natural rate," but this effect is short-lived. M. Friedman,
"The Role of Monetary Policy," The American Economic Review,
Vol. 58, No. 1 (March 1968); M. Friedman, Unemployment versus
Inflation? An Evaluation of Phillips Curve, London, Institute
of Economic Affairs, Occasional Paper 44, 1975; M. Friedman,
Inflation and Unemployment: The New Dimension of Politics--The
1976 Alfred Nobel Memorial Lecture, London, Institute of
Economic Affairs, Occasional Paper 51, 1977; Gordon Tullock, "Can
You Fool All the People All the Time?" Journal of Money, Credit
and Banking, May 1972; Gordon Tullock, "Inflation and
Unemployment: The Discussion Continued," Journal of Money,
Credit and Banking, August 1973; Michael D. Bordo and Anna J.
Schwartz, "The Importance of Stable Money: Theory and Evidence,"
Cato Journal 3, Spring 1983, pp. 63-82. Manipulation of
monetary aggregates can influence interest rates only temporarily:
As soon as inflationary expectations catch up with reality, the
Keynesian "liquidity effect" is replaced by the "Fisher effect,"
which will more than offset the initial impact of the unexpected
change in monetary policy. See Daniel L. Thornton, "The Effects of
Monetary Policy on Short-Term Interest Rates," Federal Reserve Bank
of St. Louis Review, May-June 1988, pp. 53 ff. Nominal
interest rates tend to be higher, not lower, when monetary policy
is loose. As for stabilization policies, it is now largely (though
certainly not unanimously) agreed that our insufficient knowledge,
unreliable short-run macroeconomic forecasts, and variable time
lags in the impact of monetary policy decisions make it likely that
policies aimed at stabilizing the short run may end up being
pro-cyclical rather than anti-cyclical. Attempts at "fine-tuning"
the economy often result in additional, avoidable instability.
"Monetarists...favor stable policy rules that reduce variability
and uncertainty for private decision-makers. They argue that
government serves the economy best by enhancing stability and
acting predictably, not by trying to engineer carefully timed
changes in policy actions which are frequently destabilizing."
Allan H. Meltzer, "Is Monetarism Dead?" National Review,
November 4, 1991, p. 31. See Milton Friedman, "Commodity-Reserve
Currency," Journal of Political Economy, Vol. LIX (June
1951), pp. 203-232; Milton Friedman, "The Optimum Quantity of
Money," in The Optimum Quantity of Money and Other Essays,
Aldine Publishing Company, Chicago, 1969; Gottfried Haberler,
Economic Growth & Stability: An Analysis of Economic Change
and Policies, Nash Publishing, Los Angeles, 1974; Christina D.
Romer, "Is the Stabilization of the Postwar Economy a Figment of
the Data?" The American Economic Review, June 1986, pp. 314
ff.; Meltzer, "Is Monetarism Dead?" pp. 30-32.

21.The devastating
consequences of the attempt to cure inflation by controlling wages
and prices were brilliantly shown by Samuel Brittan and Peter
Lilley in The Delusion of Incomes Policy, Temple Smith,
London, 1977.

23.Simons's analysis of
the damages produced by restrictive union practices was absolutely
devastating. Because of it, he risked being fired by the University
of Chicago and was saved thanks only to the adamant defense of
Frank Knight. He was well aware of the explosive nature of his
criticism: "Questioning the virtues of the organized labor movement
is like attacking religion, monogamy, motherhood, or the home.
Among the modern intelligentsia any doubts about collective
bargaining admit of explanation only in terms of insanity, knavery,
or subservience to 'the interests'. Discussion of skeptical views
runs almost entirely in terms of how one came by such persuasion,
as though they were symptoms of disease. One simply cannot argue
that organization is injurious to labor; one is either for labor or
against it, and the test is one's attitude toward unionism." He
thought however, that too much was at stake for an honest scholar
to remain silent: "Here, possibly, is an awful dilemma: democracy
cannot live with tight occupational monopolies; and it cannot
destroy them, once they attain great power, without destroying
itself in the process." In fact, the publication of the paper was
delayed for three years. In the first of its footnotes, we read:
"The manuscript of this article was prepared in 1941. It was
designed, not for publication, but as an exercise in formulating
privately some persuasions or prejudices which kept creeping into
discussions of other subjects or problems. Later, several friends
looked at the manuscript. Some of them, though not all, questioned
the presumption against publication. So the matter was referred to
the editors. After they decided to publish, one insert and a few
footnotes were added to the original draft."

24.Olson attributes the
gradual decline of economic performance to the accumulated power of
vested interests: "The different rates of growth in different
periods and places that I have described can be understood only if
we look at 'distributional coalitions', or special-interest
organizations and collusions.... Britain has indeed only gradually
become one of the slowest growing developed countries. It also has
the dense and powerful network of special-interest organizations,
and these again have accumulated gradually...that is, organizations
of firms or individuals that combine to increase the price of what
they sell, or to influence the government, or to do both. The
professional organization, the trade union, the farm organization,
the trade association, and the 'oligopolistic collusion' are the
leading examples of these 'cartelistic' and lobbying
organizations." M. Olson, "How Ideas Affect Societies: Is Britain
the Wave of the Future?" pp. 29-31.

25.Brittan, "How British
Is the British Sickness?" p. 258.

26.These provide a
wonderful illustration of the devastating power of wrong ideas,
confirming Frank H. Knight's wisdom: "The problem is not that
people know so little economics. The problem is that they know so
much that ain't so."

31.Irwin Stelzer,
"Reaganomics, Thatcheromics, and the Future," in Reaganomics and
After, pp. 79 ff. The quoted passage appears on pp. 80-81. "In
both countries the principal gain from taming public sector unions
was not the direct saving in wage payments to the affected workers.
Rather, it was the successful signaling to the US private sector
that the government would not be frightened by the prospect of
public inconvenience into intervening in labour disputes, and to
the UK private sector that a new, non-inflationary attitude towards
wage settlements by private sector employers would receive
government support. In America, this contributed to a record
stability in unit labour costs; in Britain, it provided an
atmosphere and a legal climate in which courageous
revolutionaries...could sweep away Luddite work rule which, until
then, had prevented British industry from taking advantage of
modern technology, and imprisoned it in a declining spiral
acceptable to the ruling soft left of tenured academics, genteel,
BBC-loving intellectuals, and paternalistic, 'wet' Tories."

32.Ibid., p.
82.

33.The Economist,
December 19, 1998, p. 39.

34.One can definitely
agree with the view that "the UK has generally experienced a
successful experiment in Reaganomics. Perhaps, since the principles
and intentions are so similar and since Mrs. Thatcher came to power
20 months before President Reagan, one can say that the USA has had
a moderately successful experiment in Thatcherism." Alan Budd,
"Reaganomics--A UK Perspective," pp. 89 ff., p. 109.

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